Financial Statements of Japanese Banks for Fiscal 2008

In fiscal 2008, Japanese banks registered net losses for the first time after fiscal 2003. The factors behind this are that (1) operating profits from core business declined mainly due to the decrease in non-interest income; (2) realized losses on securities increased sharply with higher write-off losses and losses on sales of stocks; and (3) credit costs rose dramatically with the deterioration in borrowers' businesses and the rise in bankruptcy. The nonperforming loan (NPL) ratio of the major banks increased for the first time in seven years, but the regional banks registered the seventh consecutive year of declining NPL ratio. Capital adequacy ratios of both the major banks and the regional banks rose for the first time in two years. A review of the banks' financial statements over the past 20 years shows that the banks have occasionally registered consecutive net losses for several years with the rise in credit costs and the deterioration in realized gains/losses on securities. From the standpoint of ensuring the stability of the financial system, it remains an important challenge for banks to strengthen their profit base through steady efforts to improve the balance of risk and return on lending and securities holdings.